New RIHA Study Details Shifts in Rented vs. Owned Housing Stock

The Mortgage Bankers Association’s Research Institute for Housing America today released a new study examining the trends in existing housing stock between owner-occupied and rental over time, noting substantive shifts from owner-occupied to rental over the past 15 years.

The study, Owned Now Rented Later? Housing Stock Transitions and Market Dynamics, authored by Stuart Rosenthal, Maxwell Advisory Board Professor of Economics at Syracuse University, found that between 2000 and 2014, 6.5 percent of homes built prior to 2000 and 10.3 percent of homes built in the 1990s, shifted from owner-occupied to rental status.

“Homes transition quite frequently, with rising prices shifting rental units into the owner-occupied sector and falling prices having the opposite effect,” Rosenthal said. “Over a decade, roughly 2 percent of the housing stock moves from owner to rental occupancy.”

The study additionally showed housing stock is more likely to move from owner-occupied to renter-occupied when the current occupant of a home is under water. The likelihood that a particular house transitions from owner-occupied to renter-occupied is 1-2% higher for homes slightly underwater, and 6-8 percentage points higher for homes that are deep underwater (i.e., those that have a combined loan-to-value ratio of 120% or greater).

The study noted in the long run, transitions occur in both directions, but the majority of transitions are from owner-occupied to rental as homes age. In the short run, homes transition quite frequently at times, driven by changes in home prices, with rising prices drawing rental units into the owner-occupied sector and falling prices having the opposite effect.

For underwater properties that have characteristics that limit demand in the rental sector, transitions to rental status largely do not occur, the study said. Moreover, these patterns were nearly identical pre- and post-financial crisis which suggests that the mechanisms that govern the impact of high CLTV on housing stock transitions were similar in both periods. These data also make clear that the availability of mortgage financing affects the potential for own-to-rent housing stock transitions in the face of falling housing prices.

Rosenthal said these findings have several implications for housing market dynamics. First, homes in the rental segment of the market filter down to families of lower real income at a rate of roughly 2.5 percent per year. For homes in the owner-occupied segment of the market that rate is just 0.5 percent per year. “Transition of housing stock into the rental sector, therefore, amplifies this filtering process and accelerates the rate at which markets provide affordable housing,” he said.

Second, evidence suggests that own-to-rent transitions that are caused by falling housing prices will tend to be at least partly reversed as price levels rebound. “Movement of housing stock back to owner-occupancy status, however, has the potential to undercut demand for new construction since most home building occurs in the owner-occupied sector,” Rosenthal said.

The study also suggests that the large volume of homes that transitioned from owner-occupied to rented since the crisis may act as a buffer stock of potential future owner-occupied housing, delaying recovery of new construction until a sufficient number of these now-rented homes have been reabsorbed back into owner-occupancy status.

“This may help to explain why new home construction in 2016 remains far below previous levels even though home prices at the national level have regained their 2006 peak,” Rosenthal said, adding that additional research is necessary.

“A striking feature of the last housing crisis was the dramatic shift of owner-occupied homes into the rental sector,” said Lynn Fisher, Executive Director of RIHA and the Mortgage Bankers Association’s Vice President of Research and Economics. “This paper looks back historically to help understand how common such shifts have been and finds that the factors affecting the rate of change are quite similar over time. “Also, it’s important to understand the dynamics of the existing housing stock, because they help explain how the market provides affordable housing, and how it adjusts in the face of changes in both supply and demand. This is especially true today, when new homes are adding such a small fraction to the existing home stock.”

This study draws from 11 years of data from the 2000-2014 Census and American Community Surveys and the 1985-2013 American Housing Survey panel.

The MBA Research Institute for Housing America is a 501(c)(3) trust fund. RIHA’s chief purpose is to encourage and assist–through grants to distinguished scholars and subject matter experts, educational institutions, research facilities and government organizations–establishment of a broader based knowledge of mortgage banking and real estate finance. Additional papers can be found on the RIHA website,